FHFA Director, Mel Watt’s (Potential) Agenda, and the Political Clash Behind the Scenes.

Watt’s choice to delay the implementation of increased fees administered by Fannie Mae and Freddie Mac have caught the attention of Washington D.C., investors, and borrowers nationwide.

FOR IMMEDIATE RELEASE

Contact: Brittany Williams

brittany.williams@broadviewmortgage.com

Broadview Mortgage – Katella Branch

(714)538-4404 x 114

Orange, CA, January 13th, 2013 – Last month, the Federal Housing Finance Agency (FHFA) announced (under the direction of former Director, Edward DeMarco) that it was preparing to hike up all mortgage fees securitized by Fannie Mae & Freddie Mac early in 2014. The fees are set to rise sharply for those with less than perfect credit, and those who are not making large down payments. However, on January 6th 2014, Mel Watt was sworn in as the new acting Director of the FHFA, and he publicly announced that he has delayed the fee increase until he “fully reviews the situation”.

Meanwhile, many of us are eagerly awaiting Watt’s decision, and both sides have shared their predictions as to what it would mean if Watt chose to eliminate the fees. Simply put, DeMarco worked to stabilize the housing finance system, and Watt is working to stabilize the housing market. The question is, is Watt capable of making housing affordable while also attracting private capital to compete with Fannie Mae and Freddie Mac, the two government sponsored enterprises?

Those who disagree with Watt potentially eliminating the higher fees are defending private mortgage investors so they can be better fit to compete with Fannie & Freddie. If fees go up, the investors are in a better spot to compete and therefore the government’s role in the mortgage market will be reduced. Without the increase, loans are priced too low to generate returns that private investors would demand. Without private capital to back the loans, the lending rate could decline. Another prediction is that Watt will expand underwriting to meet affordable housing goals. These policies, according to some, put people in houses they can’t afford which is how we arrived to the financial crisis of 2008 in the first place. It has been argued that this may be the start of the next housing bubble.

Mel Watt supporters believe that loan fees are already too high. An additional raise in fees will subsequently increase the cost of borrowing and will thus lead to a lending decline. In response to the push for private capital, supporters see that the best option is for consumers and the industry to get used to the Dodd Frank Act. Fee increases will lower affordability for borrowers. Bear in mind we are still in a very fragile housing market. Mortgage interest rates are already currently on the rise, which reduces affordability as it is. However, income levels have increased, and the unemployment rate has decreased. The more affordable the mortgage payment is, the less likely a borrower is from defaulting on a payment, thus stimulating the economy. According to Jann Swanson of Mortgage News Daily, “having housing payments fall relative to income is not only good for potential home buyers, but for sustaining homeownership for existing owners…Relatively low manageable ratios are critical for homeowners to have a successful sustained homeownership experience [See graph below].”

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All of us are at the edge of our seats to see what road Watt will take.

What stance do you take on this issue? Post your response below.

If you have any questions about the information herein, feel free to reach out to the Author, Brittany Williams, at Brittany.williams@broadviewmortgage.com. If you would like a quick preapproval Click Here, and for assistance with down payment or buyer assistance Click Here. You are also always free to give us a call Toll Free (855) 692-7623.

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